Automation is crucial to a portfolio manager's decision making process because it allows the manager to focus on the value-added components of their responsibilities. Whether showing historical trends, current comparisons to benchmarks or models, presentation of risk information, or any other type of data -- automation tools like spreadsheets for example have become indispensable.
Intelligence can be built into these tools as well, so that, in effect the tools make suggestions based on the data. Over time, managers continually enhance their automated tools to perform additional tasks; first, perhaps, to automatically link to external data sources or independent external applications, and later to create orders for downstream processing. Unfortunately, natural evolution morphs these tools into complex mechanisms that ultimately break as they become too difficult to use or maintain and the process begins again with the development of new tools.
What's more, as these tools evolve, so too do the firms strategies -- they restructure departments, acquire businesses, and develop new lines of business -- all while the numbers of portfolios they maintain grow. For example, tools designed to support a small number of domestic equity managers are difficult to enhance to accommodate a new multi-disciplined, cross border product offering.
Firms that are looking to increase efficiencies -- whether by a higher fund to manager ratios, the splitting of functions by specialty, building in a level of intelligent generation rules, or simply presenting better data to the end user -- should ensure that their solutions offer flexible and scalable models to change as their business needs change. Charles River Manager, the portfolio management component of the Charles River Investment Management System (Charles River IMS), is one such solution; it provides automated modeling and rebalancing tools designed to evolve with a firm's business and strategies.
Charles River designed its Modeling tool around two basic concepts: 1) 'Asset Allocation' which enables managers to distribute new flows or rebalance existing assets by applying models based on attributes (e.g.; investment class or sector) and 2) 'Security Selection', which focuses on the identification of particular positions to acquire or dispose.
Charles River Manager builds both benchmarks and models using any combination of these concepts in a model-of-model structure. Models can be absolute (e.g.; collectively adding up to 100%) or they can be relative to another model or benchmark, and update as the base entity changes.
Automation in Charles River Manager is easy to achieve and maintain -- models and benchmarks update dynamically as their constituent parts are modified. A practical example allows a user to create a sector allocation model (debt vs. equity; within equity: America, Europe and Asia; within Europe: UK, France, Germany; within Germany: industry). Each manager can maintain their own individual model. Each manager's change dynamically impacts the overall model, and any rebalancing activity automatically receives the benefit of any change no matter who makes it or when it is made.
Application of the model and benchmark to the account (or accounts) can take multiple forms as well. Under a segregated approach, a portfolio is divided into sleeves, with each sleeve having a separate portfolio manager, each who makes an active decision to review their portion of the portfolio and make investment decisions for that portion only. Under a consolidated approach, a manager is responsible for the fund as a whole. Of course, to that manager his/her "sleeve" within a multi-managed portfolio looks no different from a separately managed portfolio. The decision as to whether or not to generate transactions can be made based on a combination of factors:
- Has an asset allocation decision been made that requires the sleeve to divest itself of funds or have additional funds been allocated to that sector?
- Has the client invested additional funds in the portfolio, or are funds required due to divest instructions?
- Has the portfolio deviated from its benchmark or model in a fashion that requires action? Any or all of these actions are easily automated. Practical application in this area includes the following capabilities:
- Automatic comparison of a portfolio to its (dynamic) model and benchmark and, by exception processing, alert a manager that a material deviation has occurred.
- Automatic application of currency overlay models can adjust portfolio exposure and create forward currency transactions as necessary.
- Automatic application of a portfolio to a model or benchmark, and generation of the appropriate transaction for processing without the need for individual intervention.
For more information about Charles River, please visit www.crd.com or telephone (781) 238-0099 (Americas), +44 (0)20 7634 3300 (EMEA), or +61 (0)3 96705455 (Asia-Pac).
Charles River Development
7 New England
Burlington, MA 01803
Contact: Jennifer Duggan, Sales Executive
Contact: Rozalyn Orme, Sales Executive
+44 (0)20 7634 3300